M&A deal of the quarter century: CVRD-Inco

Sep 1, 2013

$18.68bn acquisition, 2006

Vale’s $18.68 billion acquisition of
Canada’s Inco in 2006 was, until 2013, the largest
M&A deal involving a Latin American entity; it was also the
first solid example of a regional buyer venturing outside the
region. The transaction instantly made Vale one of the top
mining companies in the world.

"Up to that point we had isolated efforts from Brazilian
companies to go abroad, on a very small scale," says Luciano
Siani, chief financial officer of Vale. "The Vale-Inco deal
sparked interest from Brazilian companies of all sectors, who
started to realize that it was possible to go abroad in a bold
way."

Financing the acquisition with debt took courage at that
time, says Siani. It was only a year or two before the deal
that Vale had realized that bridge financing of that size was
available. The initial debt was replaced with domestic bonds,
international bonds and longer-term loans. ABN Amro, Credit
Suisse, Santander and UBS advised CVRD.

The deal coincided with a major consolidation period in the
industry, which Siani says may not be seen again. It also
turned Vale into a truly international company. In addition to
the challenge of financing the deal, there was also legislation
governing foreign companies in Canada, as well as unfamiliarity
in North America with Brazil.

The commodities windfall – characterized by large
price increases in 2005 and 2006 – that allowed the
deal to happen, is winding down. China, a major buyer of iron
ore, is expected to grow less than during the previous decade.
However, Siani says the global mining firm is prepared to deal
with this. "Even though China is going through a transition
from a investment-led economy to a consumption-led economy and
growth rates will be lower, they will still provide
opportunities," he says. LF

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